Intermediate Ch. 13

(13-1) Posner Co. is a retail store operating in a state with a 7% retail sales tax. The retailer may keep 2% of the sales tax collected. Posner Co. records the sales tax in the Sales Revenue account. The amount recorded in the Sales Revenue account during May was $754,350. The amount of sales taxes (to the nearest dollar) for May is a. $62,286. b. $49,350. c. $67,893. d. $52,806.

?

(13-1) Roasten Corp.'s payroll for the pay period ended October 31, 2018 is summarized by department as follows... FACTORY: $75,000 (total wages); $9,000 (federal income tax withheld)... SALES: $22,000 (total wages); $3,000 (federal income tax withheld)... OFFICE: $18,000 (total wages); $2,000 (federal income tax withheld). The amount of wages subject to payroll taxes are summarized by department as follows... FACTORY: $70,000 (F.I.C.A); $32,000 (unemployment)... SALES: $16,000 (F.I.C.A); $2,000 (unemployment)... OFFICE: $8,000 (F.I.C.A); $0 (unemployment). Assume the following payroll tax rates... 8% F.I.C.A (for both employer and employee); 3% Unemployment. What amount should Roasten accrue as its share of payroll taxes in its October 31, 2018 balance sheet? a. $22,540. b. $15,020. c. $10,220. d. $ 8,540.

?

(13-3) Muggs Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a Wreck Em Tech embroidered leash. The leashes cost Muggs $4 each. Muggs estimates that 45 percent of the coupons will be redeemed. Data for 2017 (2018) are as follows... Bags of dog food sold: 500,000 (600,000)... Leashes purchased: 18,000 (22,000)... Coupons redeemed: 120,000 (150,000). The premium liability at December 31, 2017 is a. $50,000. b. $72,000. c. $60,000. d. $52,500.

? probably B not 100%

(13-1) Among the short-term obligations of Larsen Company as of December 31, the balance sheet date, are notes payable totaling $250,000 with the Dennison National Bank. These are 90-day notes, renewable for another 90-day period. These notes should be classified on the balance sheet of Larsen Company as a. current liabilities. b. deferred charges. c. long-term liabilities. d. intermediate debt.

A

(13-1) What is the relationship between present value and the concept of a liability? a. Present values are used to measure certain liabilities. b. Present values are not used to measure liabilities. c. Present values are used to measure all liabilities. d. Present values are only used to measure long-term liabilities.

A

(13-2) Jump Corporation has $3,000,000 of short-term debt it expects to retire with proceeds from the sale of 85,000 shares of common stock. If the stock is sold for $25 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities? a. $2,125,000 b. $3,000,000 c. $875,000 d. $0

A

(13-3) Information available prior to the issuance of the financial statements indicates that it is probable that, at the date of the financial statements, a liability has been incurred for obligations related to product warranties. The amount of the loss involved can be reasonably estimated. Based on the above facts, an estimated loss contingency should be a. accrued. b. disclosed but not accrued. c. neither accrued nor disclosed. d. classified as an appropriation of retained earnings.

A

(13-1) A company has not declared a dividend on its cumulative preferred stock for the past three years. What is the required accounting treatment or disclosure in this situation? a. Record a liability for cumulative amount of preferred stock dividends not declared. b. Disclose the amount of the dividends in arrears. c. Record a liability for the current year's dividends only. d. No disclosure or recognition is required.

B

(13-1) Greeson Corp. signed a three-month, zero-interest-bearing note on November 1, 2017 for the purchase of $500,000 of inventory. The face value of the note was $507,800. Greeson used a Discount of Note Payable account to initially record the note. Assuming that the discount will be amortized equally over the 3-month period and that there was no adjusting entry made for November, the adjusting entry made at December 31, 2017 will include a a. debit to Discount on Note Payable for $2,600. b. debit to Interest Expense for $5,200. c. credit to Discount on Note Payable for $2,600. d. credit to Interest Expense for $5,200.

B

(13-1) On January 1, 2018, Bacon Co. leased a building to Horner Corp. for a ten-year term at an annual rental of $175,000. At inception of the lease, Bacon received $700,000 covering the first two years' rent of $350,000 and a security deposit of $350,000. This deposit will not be returned to Horner upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $700,000 should be shown as a current and long-term liability, respectively, in Bacon's December 31, 2018 balance sheet? a. Current liability: $ 0... Long-term liability: $700,000 b. Current liability: $175,000... Long-term liability: $350,000 c. Current liability: $350,000... Long-term liability: $350,000 d. Current liability: $350,000... Long-term liability: $175,000

B

(13-1) Which of the following is not true about the discount on short-term notes payable? a. The Discount on Notes Payable account has a debit balance. b. The Discount on Notes Payable account should be reported as an asset on the balance sheet. c. When there is a discount on a note payable, the effective interest rate is higher than the stated discount rate. d. Discount on Notes Payable is a contra account to Notes Payable.

B

(13-3) A company offers a cash rebate of $2 on each $6 package of batteries sold during 2018. Historically, 10% of customers mail in the rebate form. During 2018, 5,000,000 packages of batteries are sold, and 175,000 $2 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2018 financial statements dated December 31? a. Expense: $1,000,000; Liability: $1,000,000 b. Expense: $1,000,000; Liability: $ 650,000 c. Expense: $ 650,000; Liability: $ 650,000 d. Expense: $ 350,000; Liability: $ 650,000

B

(13-3) Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Palmer Frosted Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2018, the company sold 1,350,000 boxes of Frosted Flakes and customers redeemed 660,000 boxtops receiving 220,000 bowls. If the bowls cost Palmer Company $3 each, how much liability for outstanding premiums should be recorded at the end of 2018? a. $540,000 b. $100,000 c. $150,000 d. $276,000

B

(13-1) A company gives each of its 75 employees (assume they were all employed continuously through 2017 and 2018) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2017, they made $24.50 per hour and in 2018 they made $28 per hour. During 2018, they took an average of 9 days of vacation each. The company s policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2017 and 2018 balance sheets, respectively? a. $176,400; $245,700 b. $201,600; $252,000 c. $176,400; $252,000 d. $201,600; $245,700

C

(13-1) Parton owes $3 million that is due on February 28. The company borrows $2,400,000 on February 25 (5-year note) and uses the proceeds to pay down the $3 million note and uses other cash to pay the balance. How much of the $3 million note is classified as long-term in the December 31 financial statements? a. $3,000,000. b. $0. c. $2,400,000. d. $600,000.

C

(13-1) Which of the following taxes does not represent a common employee payroll deduction? a. Federal income taxes. b. FICA taxes. c. State unemployment taxes. d. State income taxes.

C

(13-3) Which of the following best describes the accounting for assurance-type warranty costs? a. Expensed when paid. b. Expensed when warranty claims are certain. c. Expensed based on estimate in year of sale. d. Expensed when incurred.

C

(13-1) An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's a. portion of FICA taxes and unemployment taxes. b. and employer's portion of FICA taxes, and unemployment taxes. c. portion of FICA taxes, unemployment taxes, and any union dues. d. portion of FICA taxes and any union dues.

D

(13-1) Where is debt callable by the creditor reported on the debtor's financial statements? a. Long-term liability. b. Current liability if the creditor intends to call the debt within the year, otherwise a long-term liability. c. Current liability if it is probable that creditor will call the debt within the year, otherwise a long-term liability. d. Current liability.

D

(13-1) Which of the following is a current liability? a. A long-term debt maturing currently, which is to be paid with cash in a sinking fund b. A long-term debt maturing currently, which is to be retired with proceeds from a new debt issue c. A long-term debt maturing currently, which is to be converted into common stock d. None of these answers are correct.

D

(13-1) Which of the following should not be included in the current liabilities section of the balance sheet? a. Trade notes payable b. Short-term zero-interest-bearing notes payable c. The discount on short-term notes payable d. All of these answers are correct.

D

(13-2) If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information except a. a general description of the financing arrangement. b. the terms of the new obligation incurred or to be incurred. c. the terms of any equity security issued or to be issued. d. the number of financing institutions that refused to refinance the debt, if any.

D

(13-3) A contingent liability a. definitely exists as a liability but its amount and due date are indeterminable. b. is accrued even though not reasonably estimated. c. is not disclosed in the financial statements. d. is the result of a loss contingency.

D

(13-3) Accounting for product warranty costs under an assurance-type warranty a. is required for federal income tax purposes. b. is frequently justified on the basis of expediency when warranty costs are immaterial. c. charges an expense account when the seller performs in compliance with the warranty. d. represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale.

D

(13-3) Muggs Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a Wreck Em Tech embroidered leash. The leashes cost Muggs $4 each. Muggs estimates that 45 percent of the coupons will be redeemed. Data for 2017 (2018) are as follows... Bags of dog food sold: 500,000 (600,000)... Leashes purchased: 18,000 (22,000)... Coupons redeemed: 120,000 (150,000). The premium expense for 2017 is a. $250,000. b. $ 60,000. c. $100,000. d. $112,500.

D

(13-3) Which of the following contingencies need not be disclosed in the financial statements or the related notes? a. Probable losses not reasonably estimable b. Environmental liabilities that cannot be reasonably estimated c. Risk of damage of enterprise property by explosion d. All of these must be disclosed.

D